Pakistan Innovation Opportunities

by: Tatjana Guznajeva - Technopolis Group

Why should I read this document?

When confronted with the differences between your own market and the market of Pakistan you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also proof to be a great opportunity for your company! Adapting to a new market, like Pakistan, will allow your company to innovate. Not only will operating in Pakistan lead to new insights to be more successful in Pakistan, you will most likely also pick up on ideas to be more successful in your home market.

This document provides a short overview of innovation aspects, business opportunities and challenges in Pakistan. It will also give advice on best practices for starting and developing an innovative business venture, considering Pakistan’s country context. May it help you to explore Pakistan and lead you to innovation and success.

Opportunities and tips for innovation and doing business in Pakistan

The economy of Pakistan has been steadily growing in the last few years, due to improved performance of the service and agriculture sectors. The poverty rate has been declining (4 out of 10 Pakistanis live in poverty), while the population has reached 197 mln. people in 2017. Among most developed areas for business are Lahore, Islamabad, Karachi, Faisalabad and Multan.
The agricultural sector in Pakistan has a large potential; the country is the 2nd biggest producer of buffalo milk in the world, the 4th largest producer of cotton, the 5th biggest producer of mangoes and the 8th largest producer of wheat globally. However, to untap its potential modern farming and food processing technologies are needed.
Pakistan has an investor-friendly regime and the government is offering incentives and assistance to investors through various programmes. Explore available investment opportunities at the Board of Investment.
Despite that the digital infrastructure in Pakistan is underdeveloped and most business transactions are made with cash, the number of Internet users has reached 44.6 mln. people and the figure is expected to double by 2023. Large opportunities are expected in the ICT and e-commerce sectors; currently, the most sold goods online are mobile phones, clothes, footwear and books.
The government of Pakistan aims to develop renewable energy sources. There is a great demand for engineers, technology traders, as well as, for investors. Explore opportunities that the Alternative Energy Development Board of Pakistan is offering.
The quality of education in Pakistan is lower than in Europe, therefore there is a high demand in education services at all levels and for both students and teachers/educators.
One of the biggest industries in Pakistan is textile. The local companies are willing to produce innovative fabrics and apparel, but the country lacks technologies to develop such products. In 2014-2015, the government of Pakistan introduced a new textile policy that enabled large investments into the sector; consider public-private partnership for development of textile business in Pakistan.
Pakistan has a relatively underdeveloped physical and digital infrastructure. The government and international organisations, such as the Asian Development Bank, World Bank, are co-financing various projects and are looking for private sector investors.
Pakistan’s property market is booming, as a result of a housing shortage, growing incomes and a large number of infrastructural projects.
Pakistan experiences an acute lack of experts in the areas of engineering, architecture and management. Consultancies, training providers and individual experts in those areas might find large business opportunities in the country.

On Level 2 you can find information about innovation climate in Pakistan, while Level 3 will tell you more about business activities in Pakistan.

This page will tell you about innovation ecosystem, major technology sectors, innovation and business practices in Pakistan.

Innovation ecosystem

The lack of financial resources, institutions that support entrepreneurship and innovation, and slow scientific development make Pakistan one of the least innovative countries in the world. The innovative capabilities in the country are weakened by the lack of highly qualified labour force, low output of research organisations and a lack of collaboration between academia and industry. Historically, the government of Pakistan did not devote sufficient attention and resources to innovation, scientific and technological development. Currently, only 0.29% of GDP is directed towards research.

One of the major barriers for improving innovation ecosystem in Pakistan is a low quality of education that is partially attributed to a lack of laboratory facilities and technologies in education and research organisations. Among other significant challenges for innovation is a lack of democratic institutions and effective legal/regulatory frameworks. These factors negatively affect markets, complicate bureaucratic procedures, stimulates corruption and increase business risks.

Until now, innovation in Pakistan has been primarily import-driven. Technology transfer serves as a major instrument in stimulating industrial development, modernisation and innovation in the country. Realising that the country is lacking financial resources, knowledge and ideas to spur technological development, the Pakistani government has created preferential conditions for foreign investors and tries to collaborate with diaspora, seeking to attract world-class professors and engineers to the country.

Innovation sectors and technology

The traditional sectors, such as textile and food, have been receiving an increasing flow of investments in the past 5 years. Therefore these sectors are expected to have more innovative and technological output. According to the National Research Agenda 2017, the priority areas for the Pakistani government are agriculture and food security, water, energy and fuel cell technology, health and pharmaceuticals and climate change.

The agricultural sector is in particular attention of the government, as this sector employs around 42.3% of the labor force. Hence, the government has launched several innovation programmes to stimulate sustainable production and development of new technologies in the sector.

Innovation culture and practices

Innovation, technological experiments in Pakistan are considered risky which might discourage innovation. Since local entrepreneurs are unwilling to risk their own capital, the adoption of foreign ideas in a local context is a more preferable alternative to innovation. The R&D spending in private companies is very low, even in multinational and financially stable companies. The lack of protection of intellectual property is an additional factor that disincentivises entrepreneurs to do innovation.

Globalisation, exposure to different cultures and practices of other countries is likely to transform the current attitude towards innovation. However, so far, the change has been slow in Pakistan.

The majority of companies in Pakistan are SMEs that are typically lacking both capital and human capital (expertise), therefore business incubators and accelerators serve as a major driver of entrepreneurship and innovation in the private sector. In addition, business incubators in Pakistan are instrumental in increasing knowledge exchange, building networks and finding talent.

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in Pakistan. In addition, you will find the list of websites, which provide some hands-on information.

What is the country known for?

Sectors

The biggest sectors: textiles, oil refining, metal processing, fertilizer, steel, cement, food, electrics, construction, shipbuilding, mining, telecommunications, energy, agricultural machinery and equipment.

The service sector accounts for 56.3% of GDP, while agriculture and industry represent 24.7% and 19.1% of GDP respectively.

Iconic products

Cotton, textile, ceramics, leather, rice, sugarcane, tobacco, wheat, dairy products, footwear, fish, cosmetics, marble, oil, furniture, precious stones and jewelry, sports goods and accessories

How easy is it to do business in Pakistan?

Based on the World Bank ranking:

	Pakistan	EU Average	Emerging markets average
Overall - ease of doing business	144	30	83

To do business in Pakistan is relatively difficult, even in contrast to other emerging markets. The reasons for that are a relatively poor infrastructure, a complicated legal system, weak intellectual property rights, government intervention in the market, corruption, a large informal economy and an inefficient bureaucratic system. Red tape increases costs of starting a business and leads to long processes for obtaining construction permits, getting electricity, paying taxes, registering property and enforcing contracts.

Despite above-listed challenges, Pakistan offers good protection to investors, as the country heavily depends on foreign support, and there are several incentives, including tax benefits, that the country provides for entrepreneurs and financiers. To utilize those opportunities, it is advisable to explore opportunities in economic zones that offer special conditions (e.g., tax breaks, R&D support).

Business trends in Pakistan

The formal employment of women in Pakistan is very low (only 25% of women who have a university degree work outside home), as most women take care of the household or work on their farm. Currently, the country experiences a new trend of home-based businesses organised by women. Among the business ideas are listed fashion designing, art and culture projects, home-based cooking, catering, beauty salons, day care centres, teaching and selling products online.

Pakistani consumers are price sensitive, but the growing incomes in the last decade and a large share of young population are altering trends in consumer preferences. As a result, the demand for fashion items (particularly Western-style items), electronic devices, entertainment and cafe/restaurant services is increasing in the country, while consumers are becoming more brand conscious.

In the last decade, investment in Pakistan has been mostly directed toward real estate, automobile, ICT and energy sectors.

More hands-on info

•   Delegation of the European Union to Pakistan (in 2018: https://eeas.europa.eu/delegations/pakistan_en)
•   Pakistan Innovation Foundation (in 2018: http://pif.org.pk/)
•   Board of Investment in Pakistan (in 2018: http://boi.gov.pk/)
•   Pakistan Council for Science and Technology (in 2018: https://www.pcst.org.pk)
•   Ministry of Science and Technology (in 2018: http://www.most.gov.pk)
•   Federation of Pakistan: Chambers of Commerce and Industry (in 2018: http://fpcci.org.pk)
•   Small and Medium Enterprise Development Authority (in 2018: https://smeda.org)
•   B2B Pakistan (in 2018: http://b2bpakistan.com)

Bibliography

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Level 2:

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